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Archive for March, 2013

Business aviation consolidation: confounding the doubters?

In December last year, business aviation operators met in London to discuss the state of the industry. In particular, the theme was the fragmentation of the business aviation fleet and the problems this poses. It makes profitable operations difficult; variable costs are high enough, and the fixed costs associated with each AOC is enough to put most operators in the red, especially with 3rd party flying hours well down. Fragmentation also complicates industry cohesion in countering unwanted regulatory interventions such as APD and ETS. There was some lively discussion on the possibility of aircraft operators consolidating. After all, many operators have fleets of just 2 or 3 aircraft. The benefits – in terms of shared fixed costs but also expanded geographic coverage, mixed fleet, joint marketing and price leverage – are obvious it seems. But there are equally obvious obstacles. Not least the ‘top gun’ egos who run business jet operators. They’re generally wealthy too. Many mind not being profitable less than they’d mind an acquisition or a merger. From time to time they do go bust, but more start ups come into the market. The barriers to entry are particularly low. Many industry experts subscribe to this view. Alasdair Whyte of Corporate Jet Investor is a shrewd industry commentator. He does not believe there are many business cases out there worthy of an operator consolidation. His analysis of the ownership structure of business jet operators shows most are in private hands, and may not be driven by transparent commercial motivation. The best the industry can hope for may be something more nuanced, like an alliance. Sure enough, in late December several large European operators joined forces to start the Air Club, the first business aviation ‘airline alliance’ of its kind. But then last week there was an interesting acquisition, with DC Aviation in Stuttgart buying out Jet Link in Zurich. This gives the German group some two dozen aircraft, from ACJ to Lear 45. Not so long ago DC Aviation expanded operations through a JV in Dubai with the Al Futtaim Group. Its global expansion started with its acquisition by the diversified ATON Group. Back to the present, and it was only 6 weeks ago that Marshall Aerospace acquired Flair Jet, the Oxford-based air taxi operator. Marshall wants to expand the fleet to 20 aircraft and sees further acquisition opportunities in India and the Middle East. Also just this year came the completion of Hangar 8’s acquisition of Jet Club in Farnborough. That added 10 heavy jets to its fleet of 40, now active across Europe and Africa. In just a few months since December, at least some evidence appears to be weighing towards the potential merits of consolidation.

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